Photo: Pipe dreams: What's next for Keystone XL?

By Tyler Bryant, Energy Policy Analyst

The Obama administration deferred a decision to approve the Keystone XL pipeline until 2013. That effectively prolongs its development by at least a year and may even kill it. Keystone was seen by the Canadian oil industry as a key piece of its ambitious growth agenda over the next 10 years, and a way to ensure it receives the highest price for its oil. The Canadian oil sands produce about 1.9 million barrels a day. The industry and the Alberta government project that growth will increase to 3.5 million barrels per day by 2019. Added pipeline capacity is needed to achieve the breakneck pace of development.

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But that's not the only reason the industry wants Keystone; right now, the industry does not receive the international price for oil it ships. The existing pipeline only ships oil to the Cushing refineries in the American Midwest, where the price demanded is about 20 per cent lower than the international price. Keystone XL would take the oil to the Gulf of Mexico, where the international price would be sought. With the future of Keystone up in the air, oil sands producers are anxiously seeking out new ways to sell their bitumen to ensure they maximize profits. That has them looking closely at Keystone XL alternatives that link the Cushing refineries to the Gulf of Mexico and at the Northern Gateway pipeline proposal.

The Northern Gateway pipeline has long been the apple in the eye of the Canadian oil sands industry. This Enbridge-proposed, 1,300-kilometre pipeline would allow the industry to sell bitumen to the highest bidder, unlocking the elusive international oil price and making Canada an oil price maker instead of taker. To this end, Northern Gateway has been a key plank of the fossil fuel industry's plans. This has led to a push on the federal government to speed up approvals. It would also allow the industry to diversify its market instead of being held up by the kinds of U.S. regulatory issues and politics that delayed Keystone. Northern Gateway allows the Canadian oil sands to play by Canada's rules, which have been incredibly friendly to continued and expanded production.

The impacts of Northern Gateway could be significant. Although the pipeline would provide benefits to Alberta and international oil consumers, it would offer little benefit to people living along the pipeline. Even the temporary construction jobs won't necessarily go to people in the region. There may be some new jobs at the export terminal, but the economic benefits end there for the people of Northern B.C. First Nations people living along the pipeline argue that the environmental impacts of a rupture could significantly affect their way of life. The pipeline itself also bisects pristine ecosystems, creating a myriad of roads and ways for humans to enter and degrade the area. As a result, every First Nations group along the pipeline opposes its construction. To get the oil to the international market, supertankers would be needed. This confronts B.C.'s moratorium on tankers along the North Coast. Added pipeline capacity could also make some marginal oil sands projects viable, leading to added ecological impacts in Alberta, as well as higher greenhouse gas emissions.

Expanding the oil sands and its pipelines illustrates the International Energy Agency's false economy: oil sands producers and consumers aren't paying the true costs of these activities. If we accept that stabilizing global GHG concentration at 350 parts per million is necessary, then we are now producing much more fossil fuels with existing infrastructure than we should be. Any new investment simply ties us further to the old-world energy system that relies on fossil fuels, making it more difficult and costly to start the inevitable transition to a low-carbon world. Some would argue that we need the pipelines to meet the demand for oil. But the demand for personal mobility is there, not for oil in and of itself. Investments in low-carbon fuels such as advanced biofuels, hydrogen and high-capacity batteries would make more sense.

Realistically, these technologies are a way off, and we need to provide people with the services that they require, so oil is here to stay in the short to medium term, but instead of investing significant amounts of economic, political, social and environmental capital in a pipeline to increase production from one of the most environmentally damaging sectors in Canada, we should be getting the signals right. Oil sands production needs less regulatory assistance than it needs to internalize the costs of its environmental damage through a carbon tax. Government policy on the oil sands should focus on finding a socially optimal level of production rather than support for the seemingly insatiable desire to produce as much as possible.

Building a $5.5 billion pipeline and spending billions to develop new oil sands production capacity anchors us to a system that is extremely inflexible and costly to change. To recover invested capital, Enbridge will need to ensure that that pipeline transports 500,000 barrels a day for at least 10 years and up to 20 years. That isn't consistent with a low-carbon future that would benefit our ecosystem, avoid dangerous climate change and make this world a better place for us and our children.

November 17, 2011

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Dec 02, 2011
9:24 AM

Thanks Tim!

Nov 18, 2011
10:07 AM

Thank you Tyler Bryant for a fine article. You get to the heart of the issues we're facing today using clear, neutral language that's easy to understand.

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